[Federal Register Volume 75, Number 182 (Tuesday, September 21, 2010)]
[Rules and Regulations]
[Pages 57385-57388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23492]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, and 249

[Release Nos. 33-9142; 34-62914]


Internal Control Over Financial Reporting in Exchange Act 
Periodic Reports of Non-Accelerated Filers

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting amendments to its rules and forms to conform them to Section 
404(c) of the Sarbanes-Oxley Act of 2002 (the ``Sarbanes-Oxley Act''), 
as added by Section 989G of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act''). Section 404(c) 
provides that Section 404(b) of the Sarbanes-Oxley Act shall not apply 
with respect to any audit report prepared for an issuer that is neither 
an accelerated filer nor a large accelerated filer as defined in Rule 
12b-2 under the Securities Exchange Act of 1934 (the ``Exchange Act'').

DATES: Effective Date: September 21, 2010.

FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Special Counsel, 
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430, Steven Jacobs, Associate Chief Accountant, Division of 
Corporation Finance, at (202) 551-3400, or John Offenbacher, Senior 
Associate Chief Accountant, or Annemarie Ettinger, Senior Special 
Counsel, Office of the Chief Accountant, at (202) 551-5300, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: We are adopting conforming amendments to 
Rule 2-02\1\ of Regulation S-X,\2\ Item 308 \3\ of Regulation S-K,\4\ 
Item 15 of Form 20-F,\5\ and General Instruction B.(6) of Form 40-F.\6\
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    \1\ 17 CFR 210.2-02.
    \2\ 17 CFR part 210.
    \3\ 17 CFR 229.308.
    \4\ 17 CFR part 229.
    \5\ 17 CFR 249.220f.
    \6\ 17 CFR 249.240f.
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I. Description of Amendments

    The Commission is adopting amendments to its rules and forms to 
conform them to new Section 404(c) of the Sarbanes-Oxley Act,\7\ as 
added by Section 989G of the Dodd-Frank Act.\8\ Section 404(c) provides 
that Section 404(b) of the Sarbanes-Oxley Act shall not apply with 
respect to any audit report prepared for an issuer that is neither an 
accelerated filer nor a large accelerated filer as defined in Rule 12b-
2\9\ under the Exchange Act.\10\ Prior to enactment of the Dodd-Frank 
Act, a non-accelerated filer \11\ would have been

[[Page 57386]]

required, under existing Commission rules, to include an attestation 
report of its registered public accounting firm on internal control 
over financial reporting in the filer's annual report filed with the 
Commission for fiscal years ending on or after June 15, 2010.\12\
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    \7\ 15 U.S.C. 7201 et seq.
    \8\ Public Law 111-203 (July 21, 2010).
    \9\ 17 CFR 240.12b-2.
    \10\ 15 U.S.C. 78a et seq.
    \11\ Although the term ``non-accelerated filer'' is not defined 
in Commission rules, we use it throughout this release to refer to a 
reporting company that does not meet the definition of either an 
``accelerated filer'' or a ``large accelerated filer'' under 
Exchange Act Rule 12b-2. Under Exchange Act Rule 12b-2, an 
accelerated filer is an issuer that ``had an aggregate worldwide 
market value of the voting and non-voting common equity held by its 
non-affiliates of $75 million or more, but less than $700 million, 
as of the last business day of the issuer's most recently completed 
second fiscal quarter'' and a large accelerated filer is an issuer 
that ``had an aggregate worldwide market value of the voting and 
non-voting common equity held by its non-affiliates of $700 million 
or more, as of the last business day of the issuer's most recently 
completed second fiscal quarter''. In addition, for both 
definitions, the issuer needs to have been subject to reporting 
requirements for at least twelve calendar months, have filed at 
least one annual report, and not be eligible to use the requirements 
for smaller reporting companies for its annual and quarterly 
reports.
    \12\ See Release No. 33-9072 (Oct. 13, 2009) [74 FR 53628]. 
Consistent with Sections 404(a) and 404(b) of the Sarbanes-Oxley 
Act, on June 5, 2003, the Commission adopted initial amendments to 
its rules and forms requiring companies, other than registered 
investment companies, to include in their annual reports filed with 
the Commission a report of management and an accompanying auditor's 
attestation report on the effectiveness of the company's internal 
control over financial reporting. See Release No. 33-8238 (June 5, 
2003) [68 FR 36636]. Subsequent to the adoption of those rules, the 
Commission postponed the Section 404(b) auditor attestation 
requirement for non-accelerated filers, such that the auditor's 
attestation report for these filers would have first been required 
for annual reports filed with the Commission for fiscal years ending 
on or after June 15, 2010. The amendments in this Release will not 
affect the transition rules applicable for non-accelerated filers 
with fiscal years ending prior to June 15, 2010.
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    To conform the Commission's rules to Section 404(c) of the 
Sarbanes-Oxley Act, these amendments remove the requirement for a non-
accelerated filer to include in its annual report an attestation report 
of the filer's registered public accounting firm.\13\ We are also 
adopting a conforming change to our rules concerning management's 
disclosure in the annual report regarding inclusion of an attestation 
report to provide that the disclosure only applies if an attestation 
report is included.\14\ Lastly, we are making a conforming change to 
Rule 2-02(f) of Regulation S-X to clarify that an auditor of a non-
accelerated filer need not include in its audit report an assessment of 
the issuer's internal control over financial reporting.
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    \13\ An issuer that is an accelerated filer or a large 
accelerated filer continues to be subject to the requirements of 
Section 404(b) of the Sarbanes-Oxley Act.
    \14\ See new Item 308(a)(4) of Regulation S-K.
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    All issuers, including non-accelerated filers, continue to be 
subject to the requirements of Section 404(a) of the Sarbanes-Oxley 
Act. Section 404(a) and its implementing rules require that an issuer's 
annual report include a report of management on the issuer's internal 
control over financial reporting.\15\
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    \15\ See 17 CFR 229.308(a). For further guidance on management's 
report, see Commission Guidance Regarding Management's Report on 
Internal Control Over Financial Reporting Under Section 13(a) or 
15(d) of the Securities Exchange Act of 1934, Release No. 33-8810 
(June 20, 2007) [72 FR 35324]. All such reports for non-accelerated 
filers for fiscal years ending on or after June 15, 2010 will be 
considered ``filed'' under the Exchange Act. Although there are many 
different ways to conduct an evaluation of the effectiveness of 
internal control over financial reporting, an evaluation that is 
conducted in accordance with this interpretive guidance is one way 
to satisfy the requirements for the evaluation.
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II. Procedural and Other Matters

    Under the Administrative Procedure Act, a notice of proposed 
rulemaking is not required when the agency, for good cause, finds that 
notice and public comment are impracticable, unnecessary, or contrary 
to the public interest.\16\ These amendments merely conform certain 
rules and forms to a newly enacted statute, Section 404(c) of the 
Sarbanes-Oxley Act, as amended by the Dodd-Frank Act, so the Commission 
finds that it is unnecessary to publish notice of these amendments.\17\ 
These amendments revise the Commission's rules and forms to make them 
consistent with the internal control reporting requirements for non-
accelerated filers in the Sarbanes-Oxley Act, as amended by the Dodd-
Frank Act, and should therefore minimize potential confusion of issuers 
and investors.
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    \16\ 5 U.S.C. 553(b).
    \17\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the rule amendment to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a Federal agency 
finds that notice and public comment are ``impractical, unnecessary 
or contrary to the public interest,'' a rule ``shall take effect at 
such time as the federal agency promulgating the rule determines''). 
For similar reasons, the amendments do not require analysis under 
the Regulatory Flexibility Act. See 5 U.S.C. 601(2) (for purposes of 
Regulatory Flexibility Act analysis, the term ``rule'' means ``any 
rule for which the agency publishes a general notice of proposed 
rulemaking'').
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    The Administrative Procedure Act also requires publication of a 
rule at least 30 days before its effective date unless the agency finds 
otherwise for good cause.\18\ The Commission finds there is good cause 
for the amendments to take effect on September 21, 2010 because the 
Commission's current applicable rules and forms do not conform to 
Section 404(c) of the Sarbanes-Oxley Act.
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    \18\ See 5 U.S.C. 553(d)(3).
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    The Commission is taking this action to implement the Dodd-Frank 
Act. Thus, any costs and benefits to the economy resulting from these 
amendments are mandated by the Dodd-Frank Act. Section 23(a)(2) of the 
Exchange Act requires the Commission, in adopting rules under the 
Exchange Act, to consider the competitive effects of such rules, if 
any, and to refrain from adopting a rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\19\ Section 3(f) of the Exchange Act requires the 
Commission, whenever it engages in rulemaking and must consider or 
determine if an action is necessary or appropriate in the public 
interest, to consider if the action will promote efficiency, 
competition, and capital formation.\20\ We do not anticipate any 
competitive or capital formation effects from these amendments as they 
merely conform certain rules and forms to new Section 404(c) of the 
Sarbanes-Oxley Act. We do not anticipate that these conforming 
amendments will impose any costs, and they may promote efficiency by 
eliminating potential confusion that may otherwise result from a 
discrepancy between our rules and the statute.
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    \19\ 15 U.S.C. 78w(a)(2).
    \20\ 15 U.S.C. 78c(f).
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    New Section 404(c) of the Sarbanes-Oxley Act will have an effect on 
the ``collection of information'' requirements within the meaning of 
the Paperwork Reduction Act of 1995.\21\ The current burden estimates 
for the relevant forms include 0.5 hours for approximately 4,700 non-
accelerated filers attributable to the burden of filing the auditor 
attestation report and related disclosure, but not the audit work. As a 
result of the statutory change, those non-accelerated filers no longer 
are required to include that attestation.\22\
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    \21\ 44 U.S.C. 3501 et seq.
    \22\ We are issuing a separate notice regarding the impact of 
this change on paperwork burdens.
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III. Statutory Basis and Text of Amendments

    The amendments described in this release are made under the 
authority set forth in Section 19 of the Securities Act, Sections 3, 
12, 13, 15, and 23 of the Exchange Act, and Sections 3(a) and 404 of 
the Sarbanes-Oxley Act.

List of Subjects

17 CFR Part 210

    Accountants, Accounting, Reporting and recordkeeping requirements, 
Securities.

17 CFR Parts 229 and 249

    Reporting and recordkeeping requirements, Securities.

Text of Amendments

0
In accordance with the foregoing, the Commission is amending Title 17,

[[Page 57387]]

Chapter II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT 
COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940 AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 
80a-31, 80a-37(a), 80b-3, 80b-11, 7202, and 7262, unless otherwise 
noted.
* * * * *

0
2. Section 210.2-02 is amended by revising paragraph (f) to read as 
follows:


Sec.  210.2-02  Accountants' reports and attestation reports.

* * * * *
    (f) Attestation report on internal control over financial 
reporting. (1) Every registered public accounting firm that issues or 
prepares an accountant's report for a registrant, other than a 
registrant that is neither an accelerated filer nor a large accelerated 
filer (as defined in Sec.  240.12b-2 of this chapter) or an investment 
company registered under section 8 of the Investment Company Act of 
1940 (15 U.S.C. 80a-8), that is included in an annual report required 
by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) containing an assessment by management of the 
effectiveness of the registrant's internal control over financial 
reporting must include an attestation report on internal control over 
financial reporting.
    (2) If an attestation report on internal control over financial 
reporting is included in an annual report required by section 13(a) or 
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), 
it shall clearly state the opinion of the accountant, either 
unqualified or adverse, as to whether the registrant maintained, in all 
material respects, effective internal control over financial reporting, 
except in the rare circumstance of a scope limitation that cannot be 
overcome by the registrant or the registered public accounting firm 
which would result in the accounting firm disclaiming an opinion. The 
attestation report on internal control over financial reporting shall 
be dated, signed manually, identify the period covered by the report 
and indicate that the accountant has audited the effectiveness of 
internal control over financial reporting. The attestation report on 
internal control over financial reporting may be separate from the 
accountant's report.
* * * * *

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
3. The authority citation for part 229 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *

0
4. Section 229.308 is amended by revising paragraphs (a)(4) and (b) to 
read as follows:


Sec.  229.308  (Item 308) Internal control over financial reporting.

    (a) * * *
    (4) If the registrant is an accelerated filer or a large 
accelerated filer (as defined in Sec.  240.12b-2 of this chapter), or 
otherwise includes in its annual report a registered public accounting 
firm's attestation report on internal control over financial reporting, 
a statement that the registered public accounting firm that audited the 
financial statements included in the annual report containing the 
disclosure required by this Item has issued an attestation report on 
the registrant's internal control over financial reporting.
    (b) Attestation report of the registered public accounting firm. If 
the registrant is an accelerated filer or a large accelerated filer (as 
defined in Sec.  240.12b-2 of this chapter), provide the registered 
public accounting firm's attestation report on the registrant's 
internal control over financial reporting in the registrant's annual 
report containing the disclosure required by this Item.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
5. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *

0
6. Form 20-F (referenced in Sec.  249.220f) is amended by revising 
paragraphs (b)(4) and (c) of Item 15 to read as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM 20-F

* * * * *

PART II

* * * * *

Item 15. Controls and Procedures.

* * * * *
    (b) * * *
    (4) If an issuer is an accelerated filer or a large accelerated 
filer (as defined in Sec.  240.12b-2 of this chapter), or otherwise 
includes in its annual report a registered public accounting firm's 
attestation report on internal control over financial reporting, a 
statement that the registered public accounting firm that audited the 
financial statements included in the annual report containing the 
disclosure required by this Item has issued an attestation report on 
management's assessment of the issuer's internal control over financial 
reporting.
    (c) Attestation report of the registered public accounting firm. If 
an issuer is an accelerated filer or a large accelerated filer (as 
defined in Sec.  240.12b-2 of this chapter), and where the Form is 
being used as an annual report filed under Section 13(a) or 15(d) of 
the Exchange Act, provide the registered public accounting firm's 
attestation report on management's assessment of the issuer's internal 
control over financial reporting in the issuer's annual report 
containing the disclosure required by this Item.
* * * * *

0
7. Form 40-F (referenced in Sec.  249.240f) is amended by revising 
paragraphs (c)(4) and (d) in General Instruction B.(6) to read as 
follows:

    Note: The text of Form 40-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM 40-F

* * * * *

GENERAL INSTRUCTIONS

* * * * *

B. Information To Be Filed on this Form

* * * * *
    (6) * * *

[[Page 57388]]

    (c)(4) If an issuer is an accelerated filer or a large accelerated 
filer (as defined in 17 CFR 240.12b-2), or otherwise includes in its 
annual report a registered public accounting firm's attestation report 
on internal control over financial reporting, a statement that the 
registered public accounting firm that audited the financial statements 
included in the annual report containing the disclosure required by 
this Item has issued an attestation report on management's assessment 
of the issuer's internal control over financial reporting.
    (d) Attestation report of the registered public accounting firm. If 
an issuer is an accelerated filer or a large accelerated filer (as 
defined in Sec.  240.12b-2 of this chapter), and where the Form is 
being used as an annual report filed under Section 13(a) or 15(d) of 
the Exchange Act, provide the registered public accounting firm's 
attestation report on management's assessment of the issuer's internal 
control over financial reporting in the issuer's annual report 
containing the disclosure required by this Item.
* * * * *

    By the Commission.

    Dated: September 15, 2010.

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23492 Filed 9-20-10; 8:45 am]
BILLING CODE 8010-01-P